TaxTMI 
TaxTMI 
2024 (12) TMI 1336
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....vision of advertisement space amounting to INR 6,09,254 as royalty under section 9(1)(vi) of the Act and under Article 12(3) of India-Singapore Double Taxation Avoidance Agreement ('DTAA'), without appreciating that the said receipts are not in relation to use or right to use of a tangible property or equipment. Ground No. 1.2 : That on the facts and circumstances of the case and in law, the Ld. AO erred in making addition and the Ld. DRP erred in confirming addition to the income of the Assessee in relation to receipts from business support services under sub-contracting of personnel amounting to INR 3,84,54,562, receipts from external consultants' services amounting to 3,07,307 and travel-related receipts amounting to INR 19,96,671 as 'Fee for technical services' under section 9(1)(vii) of the Act and under Article 12(4) of India-Singapore DTAA, without appreciating that: a) The said services are neither technical nor consultancy in nature; and b) The said services do not make available any technical knowledge, experience, skill, know-how, or processes etc. Ground No. 1.3: That on the facts and circumstances of the case and in law, the Ld. AO e....
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....er Article 5 of the India-Singapore DTAA, such amounts were not chargeable to tax as 'business income' also in India as per Article 7 of the India-Singapore DTAA. Accordingly, the assessee claimed a refund of the taxes withheld while filing the ROI for the year. 7. The ROI was picked up for scrutiny assessment by issue of notice u/s 143(2) of the Act on 29.06.2021. Thereafter, multiple notices u/s 142(1) of the Act along with detailed questionnaire were issued by the Assessing Officer. Further, the Assessing Officer issued a show cause notice dated 08.03.2022, requiring the assessee to show cause as to why the receipts should not be held taxable as Royalty/FTS under the Act as well as the DTAA. Not satisfied with the reply of the assessee, the Ld. AO passed a draft assessment order u/s 144C(1) of the Act dated 29.09.2022, proposing an addition of Rs. 6,04,01,143/- to NIL income returned by the assessee as follows: 8. Aggrieved, the assessee went in appeal before the DRP which confirmed the view taken by the Assessing Officer and upheld the findings. S. No. Nature of service rendered Basis for Taxation Amount (INR) 1. Access to data center for data storage fa....
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....its data/business information. Thus, Criteo India does not own/control the underlying equipment/hardware or the software. They can only use the services through the internet for accessing the data stored in relation to its customers. 13. The ld. counsel for the assessee, referring to the concept of "the use of or right to use any scientific equipment" as provided in Article 12(3) of the India-Singapore DTAA for invoking "Royalty" provisions, submitted that provision of Data center related services does not result in use or right to use of any equipment or process by Criteo India. Considering that such receipts do not entail use or right to use of a tangible property or equipment, the same does not partake the nature of 'royalty' as envisaged under clause (iva) of Explanation 2 of section 9(1)(vi) of the Act or under Article 12(3)(a) or 12(3)(b) of the India- Singapore DTAA. 14. The ld. counsel for the assessee further submitted that the expression 'use' or 'right to use' has been considered by the Courts, Authority for Advance Ruling('AAR'), Commentary on the Model Tax Convention by the Organization for Economic Co-operation and Development ('OECD'), Prof. Klaus Vogel comment....
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....Satellite Public Co. Ltd. and New Skies Satellite B.V. [2016] 68 taxmann.com 8. 20. It is the say of the ld. counsel for the assessee that scope of Royalty under the Act was expanded by insertion of Explanations 5 and 6 to section 9(1)(vi) of the Act vide the Finance Act, 2012. However, no similar amendment was made under the tax treaties. In this regard, the assessee submitted that the data center related receipts received by the assessee are not taxable as per the provisions of India-Singapore DTAA as the Explanations 5 and 6 to section 9(1)(vi) of the Act cannot be imported into the tax treaties. For this proposition the ld AR relied on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Civil Appeal Nos. 8733-34 of 2018) and Hon'ble Delhi High Court in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V. (supra) and the recent Judgment of the Hon'ble Delhi High Court in the case of Telstra Singapore Pte. Ltd. [2024] 165 taxmann.com 85 (Delhi). where it was held that such Explanations cannot be read into the tax treaties. 21. Further, reliance was also placed on the decision of the coordinat....
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....ing services not taxable as royalty as subscribers did not get any right of reproduction of patent / copyright. 6. Dow Jones & Company Inc. [2022] 135 taxmann.com 270 (Delhi ITAT) Payment made for access to database is not taxable as 'royalty' since such services do not result in transfer of a copyright. 7. Vishwak Solutions (P.) Ltd. [2015] 56 taxmann.com 158 (Chennai ITAT) Payment for storage and retrieval of data is towards hiring of storage space and not taxable as 'royalty' and can only constitute business income which in the absence of PE cannot be taxed. 8. Atos Information Technology HK Ltd. 2022] 138 taxmann.com 439 (Mumbai ITAT) Receipts for providing services/facilities for data processing through computer hardware and software to banking entities cannot be held as Royalty/ FTS since there was neither transfer of any of right in respect of any patent or process or trademark or any similar property. 23. Per contra, the ld. DR relied upon the orders of the authorities below. The ld DR relied on the Explanation 2 clause (iva) and Explanation 5 of section 9(1)(vi) to forcefully argue that the services provided by the assessee to Criteo ....
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....rging Criteo India by arriving at its own cost plus mark up, doesn't mean that Criteo India exercises control over the Data Centre. 27. With the facts as narrated above, we now come to the issue of the nature of receipts received by the assessee from data center related services, whether the same is "Royalty" or not. We find that the Article 12(3) of the India-Singapore DTAA defines the term 'Royalty' as follows: "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) Any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) Any industrial, commercial, or scientific equipment, ......" 28. Clause (iva) of Explanation 2 of section 9(1)(vi) defines the meaning of "Royalty" as "the use or right to use any industrial, commercial or s....
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....en an access to the broadband available with the transponder to a particular customer. When the customer does not acquire physical possession of the transponder but simply its transmission capacity and when the satellite is operated by the Lessor and the Lessee has no access to the transponder, such payments would only be service payments. Accordingly, the payment does not amount to 'Royalty' for use of equipment. This principles of control and possession while interpreting the definition of Royalty have also been affirmed by the Hon'ble Jurisdictional High Court of Delhi in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V. [2016] 68 taxmann.com 8. In view of the decision of Engineering Analysis Centre of Excellence Private Limited (supra) and Hon'ble Delhi High Court in the case of Shin Satellite Public Co. Ltd. and New Skies Satellite B.V., we are of the considered opinion that that the provisions of Explanations 5 and 6 to section 9(1)(vi) cannot be read into the India-Singapore DTAA and the principles laid down in Asia Satellite Telecommunications Co. Ltd. would still hold good in the context of tax treaties. Hence, the receipts of the assessee from data c....
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....see and not with Criteo India. There was no direct use by Criteo India either of the portal or of the server as was there in the case of Cargo Community Network Pte. Ltd placed reliance upon by the AO. By granting access to the information stored in the data center, the Assessee neither shares its own experience, technique or methodology employed in evolving data centers with Criteo India, nor imparts any information relating to them. In view of the above discussion and judicial pronouncements, we hold that the data center related receipts received by the assessee are not taxable as "Royalty" as per the provisions of India-Singapore DTAA as the Explanations 5 and 6 to section 9(1)(vi) of the Act cannot be imported into the tax treaties. We accordingly direct the AO to delete the said addition. 34. On the issue of provision of advertising space purchased from third party publishers, we find that the assessee has entered into contracts with third-party publishers (such as Google, Facebook, Twitter etc.) outside India to purchase online advertising space. Such space is used to display the advertisement banners of the assessee's customers (the advertisers) to the internet users/ onl....
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....s royalty or FTS. The ld AR relied on the following decisions: Chennai ITAT in the case of ESPN digital media (India) (p.) Ltd. [2022] 140 taxmann.com 442 Play Games 24X7 Private Limited [2023] 148 taxmann.com 471 (Mumbai - Trib.) Right Florists (P.) Ltd. [2013] 32 taxmann.com 99 (Kolkata - Trib.) Pinstorm Technologies Pvt. Ltd.[supra] Yahoo India P. Ltd [supra Urban Ladder [IT Appeal No. 615 (Bang.) of 2020, dated 17-8-2021] Interactive Avenues Pvt Ltd [TS-602-ITAT-2022(Mum)] Myntra Designs Pvt. Ltd. [TS-833-ITAT-2021(Bang)] Sical Logistics Ltd. v. Asstt. DIT [2017] 78 taxmann.com 158 (Chennai - Trib.) M/S Geo Connect Ltd. (54 ITR 481)(2017 ISRO Satellite Centre [TS-82-AAR-2008] 38. Per contra, the ld DR argued that Criteo India directly accesses and uses the equipment and advertisement space for uploading the contents on the server/ advertisement space, which means that Criteo India has 'used' the server for a desired purpose. Therefore, to that extent Criteo India enjoys the right to use the server/equipment/ advertisement space to upload the advertisements. The ld DR submitted that the A....
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....n. Accordingly, Ground No. 1.1 is allowed. 42. Ground No. 1.2 relates to receipts of Rs 3,84,54,562/- on account of Business Support Services being treated as FTS. 43. The ld. counsel for the assessee, referring to Article 12 (Royalties and Fees for Technical Services) of India Singapore DTAA, submitted that payment made for rendering any managerial, technical or consultancy service may be considered as FTS under the India- Singapore DTAA only if such services would 'make available' technical knowledge, experience, skill, know-how etc. only where the person availing the services is enabled to apply the services availed in his own right without recourse to the person providing such services. 44. The ld AR argued that in order to categorize the income as FTS, the twin tests of consideration having been paid for rendering any managerial, technical or consultancy service; and such service should make available technical knowledge, experience, skill, know-how, or processes to the service recipient as a result of provision of such services, are not satisfied at the same time. 45. The ld AR submitted that the services rendered by the Assessee to Criteo India has not made avail....
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....re of controller, treasurers, public affairs, tax, human resources, law, safety, health and environment services, medical security, business procurement, etc. 6. Jefferies LLC [2024] 164 taxmann.com 468 (Mumba (ITAT) Management Oversight, Marketing, Finance and Accounting, HRM, Information Technology, Training, and Legal. 7. Tagit Pte Ltd. [2024] 159 taxmann.com 93 Delhi ITAT General Management Services; Product Strategy and Development Oversight; Sales and Marketing Support and Oversight; Financial Management; Control Support and Oversight; Statutory and Tax Compliance support and Oversight; Human Resources support and Oversight; Customer and Relations Management Support and Oversight; Project Management Support. 8. Herbalife International India (P.) Ltd. [2024] 164 taxmann.com 81 Bangalore ITAT - Provision of administrative services as part of group policies to ensure efficiency and effectiveness. 9. Shell International B.V [2024] 160 taxmann.com 761 Ahmedabad ITAT - HR shell people support services like open resourcing, HR management services, personnel record maintenance, Shell Open University, etc. 10. Invesco Holding Compa....
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....services, the assessee recovers salary and other related costs of employees for the required assistance. Such employee cost is allocated to the relevant group entities in proportion of their turnover along with a mark-up. During AY 2020-21, Rs. 3,84,54,562/- has accrued from Criteo India for rendering finance, HR, IT, training support related assistance etc. in terms of the intercompany service agreement. 51. In respect of Business Support Services under sub-contracting of personnel of Rs 3,07,307/- and travel related services of Rs 19,96,671/-, the assessee is primarily providing services in the nature of human resource, finance, accounting, business and legal support, statutory compliance, information technology related services, financial planning and analysis functions. The assessee provides such services again on a recurring basis from outside India. Further, such services are rendered because Criteo India does not have a full-fledged finance, legal, HR, IT, business support teams of their own. 52. Having heard the rival submissions and considering the facts of the case, the issue that requires adjudication is whether such receipts on Business support services are in the....
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.... gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." (emphasis supplied) 54. The above view is also upheld by the Hon'ble Delhi High Court in the case of International Management Group (UK) Ltd.[2024] 164 taxmann.com 225 (Delhi) wherein the following remarks regarding meaning of the term 'make available' have been made: "93. ....
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....d accepted at Para 7.2 of his order that the services rendered by the assessee do not make available knowledge, experience, know-how to the recipient and this is clearly visible from the examination of nature of the services rendered and the consequential benefits obtained by the recipient. The same reads as under: "9.2 The reply of the assessee has been considered. From the submissions of the assessee it is gathered that as per the assessee the services may qualify as technical services only when they make available technology, Know-how, skill, processes, experience etc. to the service recipient. In this regard it has been found that the services rendered by the assessee do not make available knowledge, experience, know-how to the recipient and this is clearly visible when one examines the nature of the services rendered and the consequential benefits obtained by the recipient." 56. In the instant case, we find that the receipts in question are for rendering the services categorized as Business support services which pertains to routine administrative services and that too, on a recurring basis year-on-year and thus, cannot have any enduring benefit for Criteo India as....
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....year since 2010? 19. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e., the assessee. 20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 21. In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider." 57. In the light of the judicial precedents referred to above, we are of considered opinion that in order t....